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21st Century Bank

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We saved the banks, yay.

Their collapse would have plunged the world into chaos.

We've all heard the arguments a hundred times before - they were 'too big to fail'.

But wait a minute - what exactly would that have meant? What functions do the banks actually have in people's day-to-day lives?

One important provision is that of a functioning, robust, fraud-resilient system through which people can reliably trade, get paid, pay bills.

In other words, transact.

We have heard about ways of segregating retail from corporate, or investment banking - and this idea stands on the shoulders of that one.

Retail banking is the oh-so-boring post-office school of banking where you have a branch-network, a bunch of ATMs, some daily accounting done to determine who has paid who, bank-managers (these days referred to Customer Service Representatives - or Sales Staff) to miss-sell financial products, offshore Call-Centres, direct debits, standing orders, coinage services, forex, cheque processing, queues, forms, windows, bureaucracy at its finest.

All the humdrum, day-to-day, banking 'system' stuff that we all know and hate.

In Retail, you don't get the pin-stripe wearing, red-braces sporting, lap-dance visiting, cocaine snorting, bonus spending, short-term market speculators. Nearly all the profit comes direct from transaction charges, a teeny bit here, a tiny bit there - added up over millions and millions of transactions a day, turns into proper profits. It's all a lot less glamorous - like the chap who works in the old Bank in Mary Poppins.

These days, all you need to do is build a big fat, reliable, scalable computer system that can deal with all the inputs and outputs without losing anyone's balance down the back of the printer, make sure your costs are lower than your revenues, and you're in business.

But hold on a minute - this isn't strictly what banks were made for.

They were initially the protected storage location for costly items such as gold and silver - they branched out into fractional reserve lending inventing both inflation and bank-notes in the process.

But today, the provision of an electronic transaction service is something completely different.

Banking has become a Utility. Or at least, one specific part of what we call 'Banking' has.

And like a Utility, like Water, or Gas, or Electricity, the Provision of Heathcare, or of a Uniformed Armed Forces, it can (and in the case of RBS in the UK, already HAS) become Nationalised.

(Short pause for breath here - yes, I know that Nationalism isn't a new idea - I'm also aware that some people consider any form of state-ownership as being tantamount to the Communist Gulags of Stalinist Socialism - (and I'm also aware of Governmental reputation in the successful implementation of grand IT projects) - BUT! - we've already established that the Armed Forces and (for example) Roads are already Nationalised, without even the faintest whiff of Communism, so that argument doesn't stand - so we'll have none of that here)

What we have to do is stratify what it is that a bank *is* and what it *does*.

One of the services that a bank provides is this transactional service. You set up an account, and having done so, you can have moneys go in, or get paid away.


I am suggesting we Nationalise just *that* bit.

We create a National (maybe International) funds transfer system that does nothing except the book-keeping. We charge 0.0001% per transaction, and raise the sort of revenues HBSC posted this week, without hurting anyone's pocket.

And we get to draw a big safety-ring around normal people's day-to-day assets.

The banks can continue to take their risks, doing the fractional reserve thing, borrowing and lending with gay abandon - investing any surplus cash people choose to take out of the transaction system, and generally doing what they do without upsetting anyone else.

And we get a rock-solid, reliable system for sending/receiving funds - and if we so choose, get to pay someone by cheque, without it taking 3 days to clear.

zen_tom, Mar 01 2011

The UK Bank Clearing System http://news.bbc.co....oneybox/3009678.stm
[DrBob, Mar 02 2011]

UNRISD: How Can Cryptocurrency and Blockchain Technology Play a Role in Building Social and Solidarity Finance? http://www.unrisd.o...57887C?OpenDocument
United Nations look at blockchain technologies (which you could consider as being payments sans banks) Beware, contains the phrase "Techno-Colonial Solutionism" [zen_tom, Feb 23 2016]



Immediate fishbone for referencing the world's most irritating advertising campaign!

Anyway, you could have just summarised this idea as "Personal banking with the Bank of England".
DrBob, Mar 01 2011

       Oh rats. I only did that to garner the immediate croissants from fans of Carghinsoorants. I may have to now add cinnamon, monty python and caffienation to the mix in order to secure more bunnage.
zen_tom, Mar 01 2011

       I love it.
Voice, Mar 01 2011

       I think they should be forced to have branches inside libraries, thus forcing councils to have to keep libraries open and satisfying your bookkeeping notion.   

       Damn, your Monty-python's counteracted the Meerkat reference, and resulted in a Neutral from me.
Dub, Mar 01 2011

       I disagree. The best way would to be to privatise the banks, except the one most obviously in hock, I forget which.   

       Currently they are all nationalised, as the government guarantees the saver's funds.   

       All the other banks get privatised and they can do anything they like, but the saver's fund will not be covered by the guarantee. Call it Big Bang II, the banks being let off the leash of excessive regulation, letting them stand on their own two feet and showing what they can do.   

       The one remaining nationalised bank, get to do boring banking and gets to keep the guarantee scheme.
not_morrison_rm, Mar 01 2011

       Actually, this has started me thinking of software. (I don't need much encouragement, I must admit). All Banking computer systems should be developed on the back of those bastions of impeccable coding/resilience, Spambots and virus software.
Well, it stands to reason: We often hear how new Air Traffic Control and Banking systems collapse at the first inkling... whereas the only thing that's prevented spam being received by this baker is the alleged hacking-through of the Transpacific / Transatlantic network trunk - Truly robust systems ought to work however they're connected, I say, port all banking software to run on Conficker. Much more robust, resilient and reliable than Linux.
Dub, Mar 01 2011

       [ ] despite evoked "Free Lapdance With Every New Account"
FlyingToaster, Mar 02 2011

       The raison d'etre of retail banking is to aggregate the savings of people of modest means and invest them. If retail banks serve only a bookeeping function, and don't invest their depositors' funds, that capital is lost to the economy. Also, without such investments, the bank can't pay interest, which is a problem for the depositors if the inflation rate is above zero.   

       Of course, the two problems might cancel out: in a recession, a savings acount paying zero percent interest, at a solvent bank, would be an excellent place to put your money. (Strictly speaking, this proposal is for a bank that pays a negative interest rate, but only 0.0001% -- the customers will never notice that "1" hiding among all those zeros.)
mouseposture, Mar 02 2011

       Responding to some choice annos, I think I need to restate the central thrust of the idea which is to split the twin functions of a bank,
i) the systematic method and infrastructure required for the provision of a transaction-supporting framework, and
ii) getting paid interest on deposits

       What we're talking about here [not_morrison_rm] is indeed to get the (already) Nationalised Big Bank to take over the systematic side of things, providing that as a Utility service to everyone in the country.   

       It is not necessarily there to 'hold' your cash, or to pay an interest rate on it. It's a transmission network, a means of paying. That's it.   

       OK, so there is probably going to be some kind of aggregate balance that *could* be made available for investment - but - counter to [mouseposture]'s remark, //that capital is // *not necessarily* //lost to the economy// as it could either be made available to the government for investment (meh), or by indeed taking that money out of the economy, and by limiting the amount of cash out on the streets, we reduce inflation and increase the strength of the currency we are operating in. Meanwhile, the remaining banks no longer have to worry about all of the costs of supporting much of their retail operations, and get to concentrate on what they are good at, investing, lending, borrowing, taking deposits etc.
zen_tom, Mar 02 2011

       OK, if the government gets to spend the depositors' funds, they make their way back into the economy (and with a multiplier effect). In that case, this is a scheme to limit economic growth, for the sake of greater stability, by taxing some investments so heavily that the marginal rate of return is negative. Some people would hate the idea, of course, but that's not the same as it being wrong.   

       But the tax is extremely regressive: only people of modest means, whose investment is a bank account, pay the tax. Again, rebarbative, but not necessarily wrong. Finally -- and this really is a problem -- it taxes the risk- averse, making it an incentive to higher-risk investments -- which is the opposite of the desired effect, no?
mouseposture, Mar 02 2011

       Hmmm, not really, no.   

       I've obviously not explained this well enough.   

       You're not grasping the fact that anyone can put their surplus funds into a proper bank and get their usual interest paid the usual way - the point I've made (and this will be the third time I've made it now) is to split out the different functions that banks provide today - one of which is the provision of an inter-bank/inter-individual payments system - and the other is of a means of investment.   

       You seem to be continuing to miss that fundamental part of the idea. Without which, the idea would just be a call to nationalise a bank - which is what we have already done. If that was the idea, then yes, you'd be correct. But it's not, you see.   

       All were doing here is setting up a big, standardised payments system.   

       The plan is not especially to invest, utilise or otherwise spend the money foating around in the system (although as described, you *could* do this - perhaps paying out some level of interest in compensation) that's not the idea - it might be an (un)intended consequence, in which case, we can address that in terms of reduced inflation etc as addressed previously - but that's not the idea being floated here. It's not a tax, it's not intended to be a tax, and indeed, at no level does anything resmbling a tax manifest itself. In the same way that most checking accounts, in not paying credit interest, or charging fees, are not considered a tax. Or in the same way that billing for pay-for-usage public utilities like gas, water, electricity, or the telephone is not generally considered a tax.   

       Unless, your definition of a tax is a very loose one, encompassing anyone having to pay for anything. If that's your definition, then yes, it's a tax.   

       I'd prefer to call it a fee.   

       The fees are paid per transaction, not by balance. Ideally, there should be no balances in the system - and if there are, they should be kept to a minimum. Maintainging balances, holding funds, all that stuff, is for the banks to do. We're just providing a stable infrastructure through which inter-bank transactions can be made.   

       Let's assume for the moment, that it *is* a tax - How can such a tax be higher (as you suggest) for the risk averse, who, due to their risk-averse nature are naturally going to make fewer transactions? You'd have thought that those in the higher income brackets are both making a great many more individual financial transactions, but which, in being in aggregate for a larger amount, would in result being taxed 'progressively' - that's just common sense.   

       Remember we're not holding/charging balances - we're applying a charge to individual transactions - in the same way that the banks do now.   

       And, to help explain one another point, since you are already 'taxed' privately by your bank (on the same basis that we are talking about here) all we are doing is moving this cost away from the paradoxy of private yet too-big-to-fail institutions, taking out the risk, and providing a utility for making transactions available, and now, completely decoupled from the other riskier financial activities that banks have been known to dabble in.
zen_tom, Mar 02 2011

       APACS is the organisation which processes inter-bank transfers. It's owned by the banks so, if this is a call for something to be nationlised then APACS is probably what we are talking about. What it doesn't do though is hold deposits (it is not a bank in itself) so the idea is probably a combination of "The Post Office should do Current Accounts" + "Nationalise APACS".
DrBob, Mar 02 2011

       Yes, exactly [DrBob] - A 'Clearing House' is exactly it - a non-involved third-party who's sole job it is to provide the means of making a transaction.   

       If you look at the many different ways of sending/receiving funds, it's mindboggling:
intra-bank inter-account transfers
Cheque (APACS)
Debit Card (Solo/Maestro/ Switch/Electron/Other)
Credit Card (Visa/MasterCard etc)
Charge Card (Amex/Diner's etc)
Bearer Bonds
Bullion and other Commodities
Countless other methods of varying complexity, cost and security.

       I'm suggesting we set up one great big clearing house that takes on as many of the different payment methods currently provided that have accumulated over the last thousand years in this haphazard manner.   

       In a world where we've standardised communication (though exactly what version of HTML we're supposed to be 'on' now is debatable) why not standardise financial communication? Why keep such a vital part of our social and economic system coupled directly to the institutions who have shown that they can't be trusted with it? We need people to do banking - we need people to spread risk around, to invest, to borrow etc. But do we also need these same people to move our money around? A motivational speaker is good at talking, but we don't put them in charge of our telephone networks. A Formula One driver is great at driving cars, but we don't put them in charge of the traffic system. A Fighter Pilot is brilliant at manouvering his aeroplane, but we don't put him in charge of Air Traffic Control. And bankers are (supposedly) good at making/taking risks, do we also want them in control of our day-to-day money-system?   

       And so yes, the idea is to pull out this piece, and create a modern infrastructure that's independent of the riskier side of banking.
zen_tom, Mar 02 2011

       Just to track back a bit on this, now that I think I understand the idea, to get to the motivation for the idea.   

       On my reading of it, the reason for the idea is to mitigate any impact a big bank failure may have on the ability of non-banks to transact. Is that correct? Because if it is, I would say that the extent of the impact on the ability of individuals to transact was not really a consideration in connection with the recent decision to bail out the banks, rather it was the fact that if a big bank failed then (a) the incestuous and labyrinthine inter-bank lending and securitisation entanglage would drag the other big banks down too and (b) those banks who managed not to get pulled down would, panic-stricken, call in all their loans (rather than fail to lend more/restructure existing debt, as did happen), and just about every business in the developed world would collapse, cats and dogs living together, mass hysteria.   

       Not saying, incidentally, that a central, nationalised clearing system isn't a good idea, just that it won't be a sufficient bulwark against little people ending up getting pumped by banking collapse.
calum, Mar 02 2011

       Good point, Dr Venkman.   

       On the hosing of the little guy - yes, I suppose there would have been a certain amount of that, though I personally doubt whether it would have been through a direct en-mass calling in of loans, probably more a loss of any savings anyone might have had as the hole over-inflated mess consumed itself. Followed by a recession, mass unemployment, canine and feline cohabitation, etc etc.   

       But - lets say this did happen. What would have happened to debit cards, or direct debits and the like? If a bank goes down, does it bring with it all of the ATMs and money-handling services that it used to operate?   

       So while the idea is to some extent trying to protect society from one aspect of a banking collapse by yanking out the utilitarian services a bank provides and keeping them safe - the other part of the scenario, a massive credit-collapse is not something this idea can direct help address.
zen_tom, Mar 02 2011

       I don't think there was anything byzantine in the scenario, really, calum. It was all quite simple and logical. The point was that American banks had massively overlent on mortgages (basically handing over great handfuls of cash in exchange for part shares in job lots of Arkansas trailer-homes).

In order to cover their arses, the mortgages were cunningly bundled up with other products and sold on to European banks, whose senior staff were more interested in making a quick buck that would boost their annual bonus payment than in examining the goods too closely.

When the prospect of massive mortgage defaults became apparent (i.e. the debt turned 'toxic'), the banks suddenly realised that they didn't have enough assets to cover their liabilities. Northern Rock got burned particularly badly on this and when it came to the attention of the public at large, the public at large did what comes naturally and beat a panick-stricken path to the tellers positions at the closest Northern Rock branch.

At this point, the Bank of England started to stir from its comatose slumber because, of course, the banking system in it's entirety has never, and never could, have enough liquid assets to cover its liabilities and now that the general herd had suddenly woken up to this rather cunning sleight-of-hand, the banks were faced with the possibility that everyone in the country was going to be beating down the door of their local branch to try and turn their virtual, electronic money into actual, real money.

When a few more banks stuck their hand up and announced that they too, had a broad portfolio of worthless debt, the air raid sirens started wailing out over the City of London and the rush was suddenly on to start printing as much money as possible in order to reassure people that their savings actually existed (the irony being that by printing more money (so-called 'quantitative easing') the government were destroying those savings via the inevitable backlash of inflation just as surely as the high street banks had been doing by handing them over to shifty-looking US mortgagees.

So, to cut a rather longer than I had intended story short, z_t's theory would insulate the general population from the vicissitudes of dodgy bankers by removing their dependence on these people and transferring it into the far more trustworthy hands of national politicians. Simultaneously, the banks' personal customers would consist only of the greedy fools that they could entice with high interest rates and who could safely be left to go bankrupt in a crisis whilst the rest of us, who just want somewhere other than a cardboard box under the bed to put our wages, could safely sit back and make disapproving tutting noises whilst otherwise ignoring the situation.
DrBob, Mar 02 2011

       I suppose the byzantianitude was not in relation to the overall scenario but the complexity of the traded debt derivatives etc, which were such that no single bank was able to say with any certainty what it owed to whom and consequently they all shat it, pulled up their respective City drawbridges and stopped lending to anyone. Cue commercial paralysis and, latterly, broad-stoke "write-downs" of shitey assets, because writing off £10bn of taxpayer underwritten money is probably more cost effective than trying to actually figure out who owns/owes what.   

       Certainly, the effects of quantitative easing are bobbing into view now, just in time for the public sector job losses kicking in. The good news is that pop music tends to improve in times of Tory government and socio-economic hardship.
calum, Mar 02 2011

       /Responding to some choice annos, I think I need to restate the central thrust of the idea //   

       Now that's just like asking for trouble on HB
not_morrison_rm, Mar 02 2011

       Yes, but it beats deleting said annos.
normzone, Mar 02 2011

       Much better to stimulate, rather than stymie discussion - and while it is possible to overdo the rhetoric sometimes, it's always got to be preferrable to deletion.   

       On Byzanitisation - it's something of a mission of mine, to accrue the appropriate academic qualifications that allow entry into the "Quantitative Analyst" job market.   

       These post-graduate mathematicians use the same mathematical tools and techniques developed to analyse quantum mechanics (all probabilitative and superposititised etc) to keep track of the value of a given tradable asset today, and to extend its likely worth out into the middle of next year.   

       Fat lot of good it did any of them mind. But still, it would be interesting to dabble in these types of things and see how the guys at the top put their models together.
zen_tom, Mar 03 2011

       Back of a fag packet, IIRC.
calum, Mar 03 2011

       Ssh! You're endangering the mystique!
pertinax, Feb 27 2016


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